|| the moodie davitt report october 2019...csr as a strategic focus. by dermot davitt. 56 || the...

$: || THE MOODIE DAVITT REPORT October 2019...CSR as a strategic focus. By Dermot Davitt. 56 || THE MOODIE DAVITT REPORT October 2019 The Dermot Davitt Interview \ .CICTF TG 6TCXGN 4GVCKN$
54 | THE MOODIE DAVITT REPORT | October 2019

Taking the

diverse,dynamic

approachat Lagardère Travel Retail

October 2019 | THE MOODIE DAVITT REPORT | 55

Lagardère Travel Retail’s swoop to acquire IDF Belgium will

extend the company’s strong presence in western Europe

and powerfully underlines the Paris-based retailer’s status as

a growth engine for parent Lagardère Group. In this

interview, Chairman & CEO Dag Rasmussen talks about the

significance of that acquisition, about competing in the food

& beverage business, about expansion in China and about

CSR as a strategic focus. By Dermot Davitt.


The Dermot Davitt Interview

With 2018 managed sales of

€4,900 million, across its

three key business lines of

duty free & fashion, travel

essentials and food service,

Lagardère Travel Retail is one of the true

heavyweights of the industry.

Apart from market leader Dufry, it has also been the

most acquisitive of the major travel retailers over the

past decade, building market share in Italy with AdR

Retail (2012), in the Netherlands through Gerzon

(2014), and in Poland and Estonia with Inflight

Service (2017). In food & beverage, it will be close to

a €1 billion turnover company this year with the

growth of Paradies Lagardère (acquired in 2015) and

Hojeij Branded Foods (HBF), added in 2018.

To that list the company has now added

International Duty Free (IDF), the Brussels-based

travel retailer that pioneered duty free in Belgium in

1958 (originally as Belgian Sky Shops), through a

€250 million transaction (announced in July and

completed in September).

As reported, IDF has a portfolio of more than 30 stores

and long-term contracts at Brussels and Charleroi

airports. Its key business is at Brussels Airport,

where it runs 25 duty free, fashion and confectionery

outlets. It has a further two units at Charleroi

Airport; premium chocolate stores under the brand

The Belgian Chocolate House at Brussels South

Station, in downtown Antwerp and in Luxembourg;

plus one store in Kenya. The top line has grown too:

IDF turnover has risen by an average of +9% over

the past three years, from €153 million in 2016 to

€171 million in 2017 and €183 million in 2018.

Appetite for expansion: The Belgian Chocolate House pioneered by IDF could be rolled out to other Lagardère Travel Retail locations


IDF has some of the best relationships in the

world with the major chocolate manufacturers and sells around two tonnes a day, which is huge.”



Source: Lagardère Travel Retail

IDF Belgium sales 2016-2018 (€ million)

CAGR +9%200

180

160

140

120

100

80

60

40

20

02016 2017 2018

153171 183

Outlining the rationale for the move, Lagardère

Travel Retail Chairman & CEO Dag Rasmussen

says: “For us it was about IDF’s market presence in

Belgium but also the quality of that market

presence. With the synergies we can deliver [€7

million by 2022-Ed] and cross-fertilisation of their

excellent management and our knowledge, it will

bring lots of value. Once we close the deal we are

ready to kick off and to work with our respective

teams to grow the business. It will also open the

door to diplomatic activities in Kenya and to new

business in Luxembourg.”

The opportunity to tap into IDF’s long-standing

relationships with Belgian chocolate

manufacturers, and to expand The Belgian

Chocolate House concept, is particularly exciting,

says Rasmussen.

The ‘Parisianisation’ of travel retail: The retailer’s latest Buy Paris Duty Free beauty execution at Orly Airport T3


“Chocolate is one of the very interesting areas we can

develop. IDF has some of the best relationships in

the world with the major chocolate manufacturers

and sells around two tonnes a day, which is huge.

The company knows the category well and there is

an opportunity to grow the Belgian Chocolate House

concept in other locations. We will look at this

closely and use the local team to help us roll it out

where it makes sense.

“In addition, as always with our strategy, once we are

in a country with one business line we will try to

grow in other business lines.”

That could signal a move to expand in food or travel

essentials in Belgium, but also in adjacent travel

channels such as rail. Lagardère Travel Retail entered

the Netherlands with the Gerzon acquisition, and

last year built on its airport presence by taking over

28 Smullers food outlets from Dutch Rail across a

network of rail stations. Expect the company to eye

similar opportunities in Belgium.

Sense of Place: Dag Rasmussen pledges an even stronger focus on destination goods to drive the business

Source: Lagardère Travel RetailNote: * Sales @100%; numbers may not add up to 100% due to rounding

Lagardère Travel Retail sales by channel 2018

Travel essentials29 countries3,000 outlets

Duty free and fashion24 countries700 outlets

�

Foodservice20 countries900 outlets

42% 45%

14%

Risk assessmentDespite its long-standing presence at Singapore Changi Airport, Lagardère Travel Retail opted out of bidding in two major recent tenders, for liquor & tobacco and chocolate & candy respectively.

As reported, the French company expressed early interest in the liquor & tobacco business, worth sales of around S$590 million (US$430 million) in 2018, but ultimately did not table an offer. Incumbent DFS surprisingly decided not to bid, leaving Lotte Duty Free, The Shilla Duty Free and Gebr Heinemann as the candidates for a concession that DFS has run for close to 40 years.

In confectionery, Lagardère Travel Retail has enjoyed a long relationship with Changi Airport Group, notably through its So Chocolate stores. In this summer’s tender covering nine stores across all four terminals, however, it took the view that

Chairman & CEO Dag Rasmussen says: “For liquor & tobacco we did more or less the same homework as DFS. We didn’t see how we could make this business work out. In these cases we prefer to put our business development efforts into other areas.

“We have a great relationship with Changi Airport, but some tenders don’t work out. It depends on the conditions and the type of contract. Also, in airports with many different

have a huge impact on sales.

“Changi is a great partner and we love the confectionery business, and although we have been there a long time, in this case we found the structure not worth taking the risk on.”

Discussing contract structure more broadly, Rasmussen

allow us to cope with different hypotheses. If you have too many risks, you are more likely to tender low and lose, and in this case it’s better not to bid at all.

them how we see the future and how it can be shaped, taking into account their views and strategies.”

For Rasmussen, tackling the business model is among the group’s strategic priorities. “We have worked a lot on this conceptually,” he says. “We have thought a lot about

models; how we can best operate from one store to bundles of stores to master concessions and from management contracts to joint ventures. It is multi-dimensional thinking and in each case we are sharing our ideas on best practice with our airport partners.

“That will help us make a difference to how we work. And it will help us deliver on our strategy built around four enablers:

The Dermot Davitt Interview Lagardère Travel Retail

Dag Rasmussen says the company remains heavily committed to its Changi business despite sitting out two major tenders this summer (pictured is one of its Discover Singapore destination stores)



Lagardère Travel Retail made an approach for IDF some

years ago, but did not proceed at the time. Explaining

why it makes sense now, Rasmussen says: “That was

before the modernisation of their stores, which was

very capital intensive with lots of uncertainty and

risk. Now the major capex is completed and we can

see the results. We identified what we can add to that

and were able to reach a deal on that basis.”

On the potential synergies, Rasmussen notes

purchasing (consolidation of volumes leading to

greater bargaining power with suppliers), but also

the systems and even the top line. “IDF do a great

job in many areas but there are some areas in which

we may be able to do better. These could include

being stronger on Sense of Place or on impulse

purchasing, which we have executed well across our

existing platforms. It’s also about taking their ideas

and developing them further. We recognise that we

don’t know everything, we want to learn each time

we make an acquisition and we want to improve.

This is how we will do it with IDF too.”

Lagardère Travel Retail: Key projects 2019A major development plan is taking shape across Lagardère Travel Retail’s duty free & fashion and travel essentials network in partnership with Groupe ADP and their joint ventures at the two big Paris airports. This year the major developments include:

• renovation of Paris CDG 2E/L Terminal (2,500sq m/eight duty free stores; opening of two Buy Paris Duty Free stores plus boutiques for Bvlgari, Fendi, Bottega Veneta, Salvatore Ferragamo, Longchamp (pictured) and Moncler)

• opening of new Paris Orly T3 stores (3,200sq m/11 stores)

In other parts of the network, duty free & fashion-related projects and brand openings this year include, by airport location:

• Paris Beauvais: (Smart Traveler)• Libreville: (multiple openings)• Vienna: (The Fashion Gallery)• Geneva: (The Fashion Gallery)• USA & Canada: Austin (Brighton), Cincinnati (No Boundaries),

Sacramento (No Boundaries, Brighton), Montreal (Lolë)

In food service key projects include:

• Austria: Vienna (Aida), Salzburg (Wolfgang)• Czech Republic: Acquisition of ten food outlets at Prague

central station

• Italy: Natoo openings (Cagliari and Naples), Beercode (Florence), Emporio del Grano (Treviso), Bontà (Catania)

• USA: Austin (Hut’s Hamburgers), Dallas (Bar Louie, Brewed, Caribou), Denver (Breckenridge Brewery, Brothers BBQ, Snarf’s Sandwiches), Asheville (Auntie Anne’s & Cinnabon), Detroit (Air Margaritaville, Detroit Street, Atwater Brewery), Orlando (Vino Volo), San Francisco (Bourbon Pub)

In travel essentials major projects include:

• France: Montparnasse station (Relay, Fnac/M&S, Nespresso), Paris Orly (Relay, Monop’ Daily, PSG)

• Spain: Canary Islands (12 stores)• Italy: Brindisi (Relay)• Turkey: Sabiha Gökçen (Relay, franchise)• China: Hong Kong (Monocle)• Australia: Sydney (Relay, Lego/Kaboom, Newslink), Avalon,

Perth (The WA Store), Ballina Byron Gateway Airport (Relay)• USA & Canada: Austin (Barton Springs, Scoreboard),

Charlotte (Charlotte’s Got A Lot), Cincinnati (Trip Advisor, Gaslight Gifts, Over the Rhine Market), Dallas (Relay, CNBC News), Sacramento (Sactown Market, Chocolate Fish Coffee Roasters), Raleigh (TripAdvisor, WRAL, CORSA luggage & accessories, No Boundaries, Swarovski), Vancouver (Relay, Relay/Illy, Coastal News), San Francisco (Cargo Mills), Phoenix-Costa Mesa (Trip Advisor, First Jet Market)


Moving fast in F&BThe other major acquisition of the past 18 months is

HBF, which is at the heart of the company’s Dining

Division in North America. With dining revenues

expected to hit €1 billion for the first time this year,

Lagardère Travel Retail is becoming an ever stronger

player in what it calls food service.

At the time of the HBF move last year, Rasmussen

said: “We won’t be the number one in food service

but we will be a significant player, and we’ll be better

equipped to tackle new opportunities.”

A year on, how has that integration proceeded and

what are the next steps to accelerate expansion?

Rasmussen says: “The HBF integration is progressing

well. All our food & beverage activities in North

America are now under a common leadership and

we are using the HBF management to cross-fertilise

and improve what we do already. We have some

work to do on systems, but the processes are in place.

It has made us a strong number three player in the

USA across 110 airports, with around US$350

million in food sales today. We have gained contracts

in San Antonio, New Orleans, Ottawa and others, so

we have managed to add business and still focus on

improving our current operations.

“So it has been a success so far. Our wider expansion

and quality delivery in food service has been shown

in our FAB Awards wins in 2019, where we were

proud to be the travel retailer with the most awards.”

Lagardère Travel Retail was among the big winners

at The Moodie Davitt Report-organised awards,

held in Dallas in June. Of the global prizes it

captured Airport Smoothie or Juice Bar of the Year

(Natoo, Venice Marco Polo Airport), Airport

Casual Dining Restaurant of the Year (Teppan,

Paris CDG) and Airport Food Hall of the Year (The

Daily DXB, DXB).


“Both IDF and HBF will be

positive in terms of



Lagardère Travel Retail: Pipeline projectsThe Paris-based company says that 2020 will be a “record year” in terms of development with over 28,500sq m of development in the pipeline. This will include 2,800sq m at Rome Fiumicino’s Schengen Terminal next May, and the opening or upgrade of 24 stores at Prague Airport, following the renewal of the duty free concession after a tender.

At Abu Dhabi International Airport’s openings will include:

• Duty free: 3,000sq m, 13 stores, four new concepts• Food service: 1,800sq m, seven restaurants (one with Chef

Todd English; four own brand stores: So! Coffee x 2, Culto, Yasamin and two local franchises: Meat District and The Majlis)

Across the two major Paris airports, the retailer will open 16,700sq m of new space over the next two years

(with the potential of more travel essentials and food service to come):

Paris Charles de Gaulle: 12,000sq m• Duty free:: 42 shops across 11,000sq m including:

CDG 2E Hall L (S3), four stores, Q1 2020CDG T1, 15 stores, May 2020CDG 2E Hall K, nine stores, H1 2020B/D junction: Six stores, June 2020

• Travel essentials: 700sq m including CDG 1: Fnac, January 2020 and CDG T2 B/D Junction: three Relay, July 2020

Paris Orly: 4,700sq m • Duty free: An additional 3,800sq m including a Buy Paris

Duty Free walkthrough• Food service: 465sq m including two stores with Chef Anne-

Sophie Pic (André, Daily Pic) plus an Itsu restaurant• Travel essentials: Relay stores across 350sq m

Leveraging the HBF portfolio is a central target now,

with in-house brand Vino Volo primed for

potential expansion beyond its 34-outlet North

American base.

Rasmussen says: “We have a task force assessing

how we can grow Vino Volo in other countries,

and we are working on how to adapt it for new

markets. We believe it can expand in EMEA and in

Asia Pacific.”

On the impact of HBF and (soon) IDF on

profitability, Rasmussen is upbeat. “We cannot give

details but both of these acquisitions will be positive

in terms of our profitability and our ratios. They are

significant in terms of synergy generation.

Vino Volo: Primed for expansion beyond North America (Orlando International pictured)

Lagardère Travel Retail

“But acquisition is not the only way forward. We aim

for strong like-for-like sales from our existing stores,

to gain more territory for our existing platforms,

through our three business lines, and to grow via

tenders, on which we are active too.“

Rasmussen says there is no grand “number one

in the world” target that is articulated internally.

“What is important is to have the right size

business, to be credible, to have the right

relationships in the industry, whether that is in

business development or with brands and partners

in F&B, fashion, P&C and so on. I think we have

reached that stage now.

“Also what is important is that we have

understanding among investors about the strategy,

and the full support of [Lagardère Group Managing

Partner] Arnaud Lagardère. This allows us to follow

interesting opportunities, and helps us when we

require capex for renewals and new tenders, as well

as acquisitions.”

North America will be a big driver of the company’s F&B business (Detroit Metro pictured)




Acceleration of expansionIn its 2019 first-half results the company cited a

range of positive and negative influences on trading,

with some headwinds such as a changing passenger

mix in some locations; labour costs in others,

alongside the continuing rise of low-cost traffic and

its impact on average spend. With almost three

quarters of the year past, how does Rasmussen sum

up the big picture for the business this year?

“We have to factor in short-term or seasonal

elements such as hurricanes in North America, but

broadly speaking the picture is positive. We see a

sharp slowdown in business in the Pacific, with some

negative market trends. But mostly we see traffic

growth almost everywhere, which is a helpful

dynamic and mirrors what we saw in the first half.

"We have some major openings coming up, from

Beijing Daxing and Shanghai Pudong in China to

Vienna (fashion) and Geneva (at the airport and a

new diplomatic store from 1 October); and a positive

outlook in like-for-like business.”

Other projects to come in 2020 will also generate

excitement. “For next year we have many more

openings,” says Rasmussen. “In duty free we have

Abu Dhabi’s Midfield Terminal, which should come

around mid-year, and Rome with a vast 2,800sq m

Schengen duty free store around May. We’ll have

many openings in Paris, with the B/D connector and

new-look T1 at CDG plus 5,000sq m at Paris Orly,

and the modernisation at Prague Airport after we

won the tender earlier this year.”

The Beijing Daxing opening in September represents

an exciting opportunity to tap into vast travel

numbers at this new airport through 1,100sq m of

fashion, beauty and F&B outlets. Brands include

Emporio Armani, Gucci watches & jewellery,

The company has made strong gains at Geneva Airport across duty free & fashion, with The Fashion Gallery one of its recent openings



Sustainability as strategic priorityThe evolution of travel retail today comes against the background of a changing consumer mindset: one that demands that a retailer is not only a seller of brands, but stands for something more.

“One of the biggest priorities we have today is CSR and sustainability,” says Lagardère Travel Retail Chairman & CEO Dag Rasmussen. “The consumer is moving much faster than we are so we must accelerate, as a business and as an industry. We plan to share our ideas on this with airports and suppliers to see how we can work together with them.”

The retailer is giving this much attention internally, and its importance is given a voice at Executive Committee level

its CSR and sustainability direction.

The company bases its activity in this area around its ‘PEPS’

programme, which is an acronym for Planet, Ethics, People and Social.

“Under the Planet heading, we have a responsibility, from plastic to much else, to take care of our future; it is a business priority not only a planet priority,” says Rasmussen. Key elements include a ban on non-reusable plastic at points of sales by 2025 and -50% less food waste by the same year. It involves reduced energy consumption and a commitment to using local food in restaurants.

He adds: “PEPS also includes Ethics, meaning fair trade for one, but also good business relationships and a clean, honest approach to business. Under People, this is about developing our teams, diversity and ensuring our teams are creative,

customer satisfaction obsession in B2B and B2C. Social is all about how we can contribute to the wider community.”

Lagardère Travel Retail’s CSR commitmentsPlanet Ethics People Social

• Reduce energy consumption of POS

• -50% food waste by 2025

• Ban of non-reusable plastics in all our POS by 2025

• Develop local food/products in all restaurants and stores

•

• Personal data protection

•

• Equal opportunities

• Diversity and gender balance

• Disabled persons

• Employee engagement

• Employee recognition

• Training

• Employees health & safety

• Charity

• Local / Community programmes

Source: Lagardère Travel Retail

Versace, Pandora, Jimmy Choo, MCM, Kenzo and

Tory Burch.

Meanwhile, as reported, Lagardère Travel Retail has

been awarded the multi-category retail and F&B

contract for the new Satellite Terminal at Shanghai

Pudong International Airport, with 30 outlets across

3,000sq m at China’s second busiest airport. Among

the brand line-up here will be Emporio Armani,

Hugo Boss, MCM, Zegna and Jimmy Choo.

Of the wider China business, Rasmussen notes:

“China is unique and must be treated as such. We

need to customise our development strategies and

how we operate the business. It’s not like you can

copy and paste as you might do in other markets. We

adapt what we do to suit the market. We want to

localise not only our concepts but also our support

functions. Everything we do is run from China.

“Becoming successful there has meant a lot of

patience and trial and error. You cannot go there and

think you can bring anything less than your best

game and your latest ideas and concepts. Some

brands sometimes don’t understand the market yet,

or the opportunity to access the consumer in duty

paid for example. But it is there and it holds strong

potential. The customer is changing fast, but so too is

the technology. It is fascinating to be involved there.”

On the Duty Zero by cdf joint venture with China Duty

Free Group (in which Lagardère Travel Retail is

minority partner), Rasmussen says each party has

brought much to the table. “We have strong

management at Hong Kong Airport today and we work

together in a positive way. It is a great opportunity.


“Beyond this we have grown at Hong Kong Airport

in food and travel essentials. We recently opened our

first store with Monocle and I got probably the best

feedback I have ever had from an airport, which

praised the design and ambience.

“We have TripAdvisor there too, as elsewhere, and

are trying to go to a new level with that partnership.

We aim to bring to China the best and most suitable

modern brands and executions. We spend a lot of

time sourcing the right brands we can for the

environment.”

That search for partnerships that can differentiate

the offer applies to food service too. At Hong Kong

International Airport, Lagardère Travel Retail last

year opened the first two stores under a wide-

ranging franchise agreement for global travel with

New York gourmet food & beverage brand Dean

& DeLuca.

This could extend to 150 travel retail locations over

the next five years.

It builds on the range of franchise brands, in-house

concepts and other partnerships with which

the group aims to challenge for market share in

travel dining.

“Globally we are a strong number four worldwide,


Newness in the mix:


but if you look at the quality of what we do, we are

among the very best,” claims Rasmussen. “We have a

strong central team to recruit new brands, whether it

is Dean & DeLuca or Itsu [which will open at Paris

Orly next year -Ed] or others.

“We empower our local teams but at the same

time we believe we are the only travel retailer

to centrally audit hygiene and food safety. That

puts a positive pressure on the individual markets

as we cannot accept anything but the highest

standards. So we are going our own way but it is

in the right direction. It is a balanced approach,

involving local hero partnerships with chefs;

fast casual in-house brands such as Natoo,

plus partnerships.”

Converging business linesRasmussen has often made the point that the

convergence between business lines – food and

duty free, duty free and travel essentials or travel

essentials and food – is changing. So what might

this mean for the airport layout and the store of

the future?

“We think that in some small and medium-sized

airports that convergence is a must-have. It’s the best

way to be able to pay more rent and ensure

profitability for the airport while offering the best

quality of service. We sometimes challenge for

master concessions covering duty free, travel

essentials and food. With one team you can lower

the break-even point in the contract. Then you have

the overlap between food and retail, where we see

some evolution.

“We talk to airports a lot about how we see the future

of concessions in this regard. It’s one of the issues we

have with contracts that are not flexible enough to

allow a switch between travel essentials or food or

duty free, even if the demand is there for one or the

other. So we certainly see convergence and some

evolution, though not everywhere.”

Lagardère Travel Retail is adapting to evolving and

converging needs where it can, for example among

low-cost travellers, with a leaning towards travel

essentials and impulse items. At another level

convergence can be seen in the overlap between

food and retail that Vino Volo offers as both wine

bar and shop.

From airports, a higher level of flexibility in space

planning is likely in the future, Rasmussen notes,

with more square metres allocated to convenience

and non-traditional, lower margin but potentially

higher volume categories.

“Airports today are competing with each other more

and more,” says Rasmussen. “The revenue is

obviously important but so too is customer

satisfaction. You don’t have the same penetration

between travel essentials, food and duty free

everywhere. So to optimise satisfaction you need

to have the right mix between the three, at least

in the offer.”

Engagement with the consumer comes not just in the

store of course, but before, during and after via

digital platforms. Where is Lagardère Travel Retail

on the digital journey today?

Focus on fashion: The retailer’s new luxury store at Vienna Airport (see also our Category Insight supplement)

Lagardère Travel Retail


“First, we don’t want to become an online retailer.

It’s not our business and other players do it far

better than we ever can. We see digital as a support

to our present activity. There are several elements

to the approach.

“It allows us to communicate with the consumer

throughout the journey. There is a pre-order

element, which we offer through Aelia Duty Free. It

doesn’t bring much revenue unless we discount, but

we have to offer it and we believe it will grow. There

are also shop & collect services for the frequent

traveller that we manage well.

“But the most important part of digitalisation is

inside the store. It serves to give more information to

the store staff, from product knowledge to range to

exchange rates, and most of all it allows the front line

team to tell a story and offer an experience. It also

helps ease payment through all of the different

methods, and means we can give a better service and

engagement at the right level to the customer.”

The right service can only be relevant with the right

offer, and here Rasmussen expects more change in

the mix.

“Retail is changing and being rethought all the time.

We have to ensure the offer is not boring as, frankly,

it has been in the past. We want to create that ‘wow’

impression and be different, offering a flavour of the

city wherever the shop is located.

“So for me the ‘category’ that will grow is not a

product category in the classic sense but Sense of

Place. That means a local touch, products that you

can only find at one airport and nowhere else,

sourced from one country. It runs across categories

and can include liquor, fine food, cosmetics,

perfumes, tobacco, fashion, anything. Sense of Place

in that sense will help compensate for the fall of

some other categories that are at risk, I believe.”

As we enter the final quarter of 2019, Lagardère

Travel Retail can point to a solid position as a global

business and strengths across each of its business

lines. In 2018, the group reached €2 billion in

managed sales from its duty free & fashion arm for

the first time. From travel essentials it delivered €2.2

billion, while F&B continues to grow as the company

becomes a challenger on the world stage.

As Rasmussen notes, it is rethinking its formats

and proposition and providing ‘phy-gital’ experiences

across its network, as its New Age Beauty concept at

Paris CDG underlines, and as innovative speciality

concepts such as Monocle also demonstrate. Expect

more newness in the retail footprint in late 2019 and

through 2020, as Lagardère Travel Retail seeks to

build on its position as a true global heavyweight.

Brand showcase: Lagardère Travel Retail has established a powerful position in the European airport retail luxury market, led by its Paris CDG presence


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